Pakistan has sought support from the United States for the revival of the International Monetary Fund (IMF) programme as the global lender has not yet agreed to a staff-level pact despite the tough measures by the government.
According to details, Finance Minister Miftah Ismail and Minister of State for Finance Ayesha Pasha met with US Ambassador Donald Blome and sought Washington’s support for the revival of the IMF programme.
Blome was apprised that the government has proposed fiscal consolidation equal to 2.2 percent of Gross Domestic Product (GDP) in difficult circumstances.
The US ambassador was informed that despite three rounds of talks and several virtual contacts, the IMF did not even share the draft of the Memorandum for Economic and Financial Policies (MEFP) with Pakistan.
The US is the largest shareholder in the IMF and has in the past too played a role in helping Islamabad complete the fund’s programme reviews. The Ministry of Finance did not officially comment on the article.
Officials have claimed that the memorandum forms the basis of any staff-level agreement and without finalization of the MEFP no formal staff-level agreement can be signed.
Pakistani officials further said that after the increase in petroleum prices and electricity tariffs, it was hoped that the global lender would be ready for staff-level negotiations.
“However, the IMF is now demanding to withdraw tax incentives and collection of Rs150 billion additional revenue from the salaried class,” the officials added. The government has already massively increased fuel prices and abolished all subsidies.
PML-N-led coalition government on Wednesday has jacked up petrol price by Rs24 per litre. The announcement was made by Finance Minister Miftah Ismail, citing government was not in a position to bear more subsidies anymore.
Last week, the IMF country head said that “an important principle underpinning these (power sector) reforms is that all stakeholders contribute in an equitable manner to reduce the circular debt, between the government, IPPs and consumers, while protecting the most vulnerable consumers”.
She had also said that Pakistani authorities “should be cognizant of the limited fiscal space available to clear any outstanding arrears of the sector stakeholders, and thus there should be a trade-off between this and other government priorities, and the potential to unlock lower capacity payments for electricity as part of the aforementioned burden sharing across stakeholders”.
Pakistan owes around Rs300 billion to the Chinese IPPs and the IMF was keeping track of every payment made to them.
The government is making all-out efforts to revive the programme and has taken many unpopular steps, but still remains short of the IMF’s expectations, said a senior Pakistani negotiator.
The sources said that if no breakthrough is achieved in the next couple of days, the Secretary Finance and the Minister for Finance may dash to the United States to meet the top management of the IMF.
The coalition government had hoped that after increasing the petroleum products prices and starting the process for approval of increase in electricity prices, the IMF may agree to reach a staff level agreement.
However, the IMF also wants not only a reversal of cut in the income tax rates for the salaried class but is seeking to pass on an additional burden of Rs125 billion on the salaried people. The government has now worked out a new proposal that entails reversing Rs47 billion tax relief and then passing on additional burden of Rs18 billion to the salaried class, the sources added.
The previous government had committed to increase the taxes on the salaried class with effect from July and also agreed to share the draft of the personal income tax reforms with the IMF by end of February 2022. The PTI did not fulfill its commitments.
The government has already massively increased the fuel prices and abolished all subsidies. But the IMF is now seeking reintroduction of the petroleum levy and sales tax over and above the existing prices, said the sources.
While talking to the media after the Senate Standing Committee on Finance meeting, Minister of State for Finance Dr Aisha Pasha said that there was now more clarity to the IMF on the new budget, hoping to sign a deal very soon.
